Hands-on with retirement: David Bell

Auscoal's inaugural chief investment officer David Bell speaks with theinstoreport about how his passion to make a real difference to people's retirement outcomes led him to leave his consultancy and join the industry fund.

You’ve spent 12 years at Colonial First State and have also run your own consultancy firm. What made you decide to take up a CIO role with a super fund?

Colonial First State is a great company, especially in those exciting years when it was young and growing and there was a little less of that big company feel to it. I thought, perhaps naively, that I would be there forever. It wasn’t to be.

I love small business and decided that if I don’t have a go at my own business now, I maybe never will.

St Davids Rd Advisory was great fun and quite successful. Being an independent is a great position, particularly if you are prepared to make the most of the responsibilities it affords. I tried hard to contribute to industry debate.

Ultimately, however, the role of an independent consultant is to provide advice, and not implement.

So whether it be complexity, cost or politics, or simply disagreement, I often felt like I was sharing my best work, but it wasn’t being implemented.

I wanted to make a difference to people’s retirement outcomes. The question I faced was whether I would make a greater contribution by being a light touch on many or get more directly involved with a subset of the population.

I decided the latter and so a profit-for-member environment is perfect for me. I feel directly connected to the retirement outcomes of 75,000 members.

You have a strong background in hedge funds and alternative investments. Is it part of your brief to ramp up investments in this sector?

Auscoal Super already has a significant exposure to hedge funds and alternatives.

This was actually one of the attractions: a preparedness to invest in alternatives combined with a life-cycle approach is a powerful combination of capabilities.

In this case, there is no need to ramp up anything. We are well set in this space.

Of course, I have a view on how things can be improved and you are not doing your job well if you are not assessing the developments in the alternatives space. We are constantly monitoring the return and alpha opportunities traded off against risk, beta, liquidity and fees.

Auscoal Super is one of the few industry super funds that has a life-cycle option. What opportunities and challenges does this bring with it?

I’m a strong believer that the design of default funds can be improved significantly.

The life-cycle strategy approach is an interesting one. I thought Auscoal Super’s position to create a life-cycle strategy as their default showed leadership and courage to do what is best for their members.

Best default design is one of those areas where I think academia is a long way ahead of industry, particularly in the tools needed to assess outcomes. That was probably one of the reasons Auscoal Super were interested in me; I bring some of those skills.

Default design will be a huge area of ongoing research for the industry for years to come. So it is important to have those technical capabilities on board.

The opportunities in default design are simple – you have the opportunity to greatly enhance the retirement outcomes of your default members, noting that ‘default’ includes disengaged and those who simply trust that the fund will look after them.

From a financial perspective we can trade off between the expected retirement outcome and the range of retirement outcomes. This represents advancement in the language from phrases such as ‘nest egg’.

The challenges are where do you stop?

For instance, do you include well-known behavioural biases into the design of your default, noting the recent example of NEST in the United Kingdom, which actually has a strong behaviourally motivated focus to take low risk in the early years of saving to generate confidence amongst members?

The other challenge is board education. Default design is likely to become a highly complex area, so it is important to take your board along with you in terms of the vision, but also keep them educated.

You have become the first chief investment officer of Auscoal; did this require you to put many new procedures and infrastructure in place?

Not really. Auscoal Super was already a very well-managed fund, so all the people here before me deserve credit.

Obviously, you come into these roles with your own views, but that becomes part of the ongoing role to take the fund forward.

The world of finance rarely treads water, so we need to swim hard to make the most of all the innovations occurring in the industry.

Are you looking to expand the in-house investment team or will you still work closely with Mercer?

We will be expanding our in-house team gradually over the next couple of years, but we have no interest in having a mega-team.

There comes a point where the marginal benefits start declining, you lose that interaction and you spend all your time managing people – that’s not for me.

Mercer is a great partner for Auscoal Super. Beyond their breadth in the investment management space, they were also well advanced in retirement outcome modeling, so they are a good match for us.

As our business evolves, in this case a larger internal investment team, of course the nature of the relationship may change. It would be disappointing if it didn’t become a stronger two-way exchange of ideas. Perhaps we work with specialist consultants on particular projects.

I’m sure, however, that an asset consultant will always be involved – they provide a good foundation.